Given all that has transpired in the U.S. territory of Puerto Rico since 2016 – including natural disasters, political turmoil, and bankruptcy fights – the title of today’s hearing in the House Natural Resources Committee could not be timelier or more relevant: “The Status of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA): Lessons Learned Three Years Later.” But how can public officials move from learning these lessons to applying them?
This is a question that continues to have major consequences for fiscal policy in San Juan and Washington, DC. Long before today’s panel met on Capitol Hill, advocates for Puerto Rico were warning that the PROMESA law and the Financial Oversight and Management Board (FOMB) it created needed follow-on guidance and work from Members of Congress in both parties. In a February 20 analysis for Morning Consult, NTU President Pete Sepp joined with Max Trujillo (an expert on Caribbean economic policy and former Democratic staffer) in contending:
Congress and the administration now have an opportunity to engage in a genuine partnership for the prosperity of our 3.2 million fellow Americans living in Puerto Rico. Democrats and Republicans must recognize that private investment and economic growth are key to getting Puerto Rico out of the austerity trap. They must also recognize that they cannot walk away from the FOMB’s flaws.
Among the author’s recommendations – several of which proved prescient in light of today’s event – were:
1) Demand a status report from FOMB and review its accomplishments at a Congressional hearing;
2) Insist on accountability for the Board’s own financial operations;
3) Direct FOMB to focus on local private development initiatives; and
4) Finally address federal tax policies that threaten the island’s economic recovery and future competitiveness.
Although after today the House will have made progress on objectives 1, 2, and perhaps even 3, so much more work remains to be done. Once the drama subsides over the legality of the process that nominated FOMB’s members, Congressional tax-writing committees must confront the issue of Puerto Rico’s federal tax status that was set aside during debate over the Tax Cuts and Jobs Act of 2017.
This issue was recently explored in-depth through an NTU Foundation Policy Paper, which suggested many paths for federal tax policy going forward:
One option would be to reduce the U.S. tax rate on Puerto Rico-sourced income, either permanently if Puerto Rico remains a territory, or as a transition during incorporation since presumably companies would not be operating as CFCs in an American state. Whatever the duration of such a rate, it would be desirable to provide Puerto Rico a federal tax climate more hospitable than those afforded our trading partners making foreign direct investment.
The paper also explored at length other reforms such as strengthening the island’s constitutional balanced-budget requirement, setting benchmarks for solvency in pension programs, waiving the Jones Act shipping restrictions, and improving local property tax administration.
All of these steps will require energy and determination on the part of federal and Puerto Rico leaders to achieve. During PROMESA, Puerto Rico’s economic revival has advanced from a standstill, to a crawl, to a slow, sometimes halting walk today. Reaching the full running speed for the island’s people to prosper will take a new, bipartisan commitment.